What is the difference between employee and contractor?
Understand how the ATO distinguishes an employee from an independent contractor and why classification matters.
Summary
Businesses need to work out whether a worker is an employee or independent contractor because PAYG withholding, super and reporting obligations can differ. The label used by the parties, an ABN or invoicing arrangement does not decide the classification by itself.
What this means
The ATO explains that classification requires an objective assessment of the totality of the relationship, focusing on the legal rights and obligations created by the contract. Where a comprehensive written contract records the relationship and is valid, the contractual rights and obligations are central to the assessment.
Relevant contractual factors can include control, the ability to delegate, who bears commercial risk, how payment is structured and whether the worker is serving in the engaging business or operating their own business. These factors are considered together rather than as a mechanical checklist. Super guarantee rules also need to be considered separately because some independent contractors are employees for super purposes.
Typical actions
- Identify the contract with the worker, including written, oral and implied terms where relevant.
- Review the legal rights and obligations created by that contract, not just the label used.
- Consider contractual factors such as control, delegation, risk, tools and how payment is structured.
- Check super guarantee obligations separately for independent contractors.
- Seek professional advice for uncertain or high-risk arrangements.
Official ATO sources
Last checked: 24 August 2026
Difference between employees and independent contractors
Explains the ATO’s current approach to worker classification.
Employee or independent contractor
Main ATO hub for tax and super obligations that depend on worker classification.
Super for independent contractors
Explains the separate extended definition of employee for super guarantee purposes.
Related questions
- Do employers need to pay super for contractors?
- What tax obligations do employers have?
- What is PAYG withholding for employees?
- What records do employers need to keep?
Important notice: Tax Clarity is an independent information tool. This page provides general information based on official sources. It does not provide tax, legal, financial, or accounting advice. Tax rules can change, and how they apply depends on your circumstances. For advice about your situation, speak with a registered tax agent or qualified professional.
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